Revival in US helps WPP to record profits

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The Independent Online

The advertising giant WPP saw record profit growth in 2010 thanks to a "dead cat bounce" in the US market and a resurgence of advertising spending on traditional media.

Profits at the UK-based global group soared by 28 per cent to £851m, on revenues up by 7 per cent to £9.3bn, the company said yesterday.

Like-for-like revenues, with theeffects of currency fluctuations stripped out, rose by a shade more than 5 per cent. Headline pre-tax profits – without extras such as goodwill impairments and investment writedowns – soared to more than £1bn for the first time, from £812m in 2009. And the group is raising its dividend by 15 per cent to a record 17.8p.

"We feel good about where we've got to," WPP chief executive Sir Martin Sorrell said yesterday.

The stellar performance was only "a smidgen" better than expected, according to Sir Martin. But the massive contribution from the US market – with growth of 7 per cent, compared with GDP growth nearer 3 per cent – was a surprise. In part, WPP attributes the revival to a dead cat bounce in a market that sank to a cyclical low in 2009 not seen since the mid-1970s. But it was also helped by the massive economic stimulus efforts of the US Government, and a recovery in segments of the market cut particularly heavily during the recession, including automotive, financial services, retail and travel.

Even the fragility of the recovery played to WPP's advantage, with cash-rich corporations keen to invest but favouring low-risk advertising spending over capital investments or plans to increase capacity.

"Companies are sitting on $1 trillion in cash but they are more likely to invest in their brands than to splash out on extending capacity or even acquisitions, particularly in a world where growth rates in Europe and the US are still constrained," Sir Martin said.

Over 2011, growth was expected toremain constant at around 5 per cent, he added, though the balance would shift away from mature markets and traditional media to fast-growing emerging economies and digital media.

Last year's improvements started slowly, with no growth in the first quarter and 4.7 per cent in the second. But revenues then rocketed, up by 7.5 per cent and 8.5 per cent in the third and fourth quarters, respectively. WPP also saw strong margins growth from 13.2 per cent in the first half to nearly 16 per cent in the second, ahead of both 2009 and 2008.

"In terms of the speed of recovery: if someone had said to me two years ago that we would be where we are today, I would have said they needed their head examined," Sir Martin said.

The boost in the second half took both revenue and profitability back up to the levels reached before the collapse of Lehman Brothers in 2008 sent shockwaves through economies across the world.